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Hurricane Sandy breaking windows

lewis20
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11/1/2012 10:10:37 AM
Posted: 4 years ago
I've seen it everywhere, even CNBC hosts talking about how the hurricane will boost the economy in all the work needed to rebuild. Broken window fallacy to a T isn't it?

"The short-term loss to economic output should be made up by long-term spending to rebuild."
http://www.businessweek.com...
"If you are a racist I will attack you with the north"- Abraham Lincoln

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Stephen_Hawkins
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11/1/2012 11:11:20 AM
Posted: 4 years ago
At 11/1/2012 11:09:16 AM, Cody_Franklin wrote:
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

Can I burn your house down? I want to boost the nation's production frontier.

Equity =/= efficiency.
Give a man a fish, he'll eat for a day. Teach him how to be Gay, he'll positively influence the GDP.

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Stephen_Hawkins
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11/1/2012 11:12:01 AM
Posted: 4 years ago
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

By the bye, the nation is always below it's PPF, I thought...
Give a man a fish, he'll eat for a day. Teach him how to be Gay, he'll positively influence the GDP.

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lewis20
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11/1/2012 11:14:07 AM
Posted: 4 years ago
At 11/1/2012 11:12:01 AM, Stephen_Hawkins wrote:
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

By the bye, the nation is always below it's PPF, I thought...

It is.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
lewis20
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11/1/2012 11:19:47 AM
Posted: 4 years ago
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

It still is. The glass maker Jersey is doing over time while the widget manufacturer in Omaha is barely making due.

To be plausible there'd have to be an excess of lumber and out of work homebuilders in the Jersey area, even then they are going to higher part time to get jobs done asap.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
darkkermit
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11/1/2012 11:28:57 AM
Posted: 4 years ago
At 11/1/2012 11:09:16 AM, Cody_Franklin wrote:
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

Can I burn your house down? I want to boost the nation's production frontier.

just because theoretically it could be socially beneficial, doesn't mean it would be personal beneficial.
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darkkermit
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11/1/2012 11:31:28 AM
Posted: 4 years ago
At 11/1/2012 11:19:47 AM, lewis20 wrote:
At 11/1/2012 11:05:32 AM, darkkermit wrote:
its not a broken window fallacy, if the nation is producing below its potential production frontier.

It still is. The glass maker Jersey is doing over time while the widget manufacturer in Omaha is barely making due.

What if glass maker in Jersey is having a hard time finding customers? The glass maker in Jersey could hire more people, and thus reduce unemployment.

To be plausible there'd have to be an excess of lumber and out of work homebuilders in the Jersey area, even then they are going to higher part time to get jobs done asap.

And if there are, then the analysis would be correct.
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lewis20
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11/1/2012 11:45:14 AM
Posted: 4 years ago
Hire not higher
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
slo1
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11/1/2012 2:31:51 PM
Posted: 4 years ago
The broken glass fallacy is built upon the fact that when a person has to pay for repairs they have less disposable income to spend elsewhere.

The entire purpose of insurance is to mitigate the hit to the insured and spread it across many insured. Depending upon how much damage is insured, that cost is probably so spread across the nation and world that it is not inconceivable that the economic advantage will go towards that region, meaning the cost to restore it and economic benefit will be greater than the hit to disposable income in that region.

In other terms the fallacy is only appropriately measured in terms of the world economy because of how insurance and reinsurance is structured these days.
lewis20
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11/1/2012 2:42:09 PM
Posted: 4 years ago
At 11/1/2012 2:31:51 PM, slo1 wrote:
The broken glass fallacy is built upon the fact that when a person has to pay for repairs they have less disposable income to spend elsewhere.

The entire purpose of insurance is to mitigate the hit to the insured and spread it across many insured. Depending upon how much damage is insured, that cost is probably so spread across the nation and world that it is not inconceivable that the economic advantage will go towards that region, meaning the cost to restore it and economic benefit will be greater than the hit to disposable income in that region.

In other terms the fallacy is only appropriately measured in terms of the world economy because of how insurance and reinsurance is structured these days.

Insurance isn't going to cover a lot of the damage. Most people hit don't have flood insurance and the cost is coming out of their pockets. Other costs are covered by FEMA and the red cross.
It's still a broken window. We don't advocate demolishing cities due to the economic benefit of rebuilding them.
"If you are a racist I will attack you with the north"- Abraham Lincoln

"Do not wear clothing woven of two kinds of material" - Leviticus 19 19

"War is a racket" - Smedley Butler
slo1
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11/1/2012 2:57:37 PM
Posted: 4 years ago
At 11/1/2012 2:42:09 PM, lewis20 wrote:
At 11/1/2012 2:31:51 PM, slo1 wrote:
The broken glass fallacy is built upon the fact that when a person has to pay for repairs they have less disposable income to spend elsewhere.

The entire purpose of insurance is to mitigate the hit to the insured and spread it across many insured. Depending upon how much damage is insured, that cost is probably so spread across the nation and world that it is not inconceivable that the economic advantage will go towards that region, meaning the cost to restore it and economic benefit will be greater than the hit to disposable income in that region.

In other terms the fallacy is only appropriately measured in terms of the world economy because of how insurance and reinsurance is structured these days.

Insurance isn't going to cover a lot of the damage. Most people hit don't have flood insurance and the cost is coming out of their pockets. Other costs are covered by FEMA and the red cross.
It's still a broken window. We don't advocate demolishing cities due to the economic benefit of rebuilding them.

Insurance does not have to pay 100% to be a net positive for the region. Like I said, it is the "broken window" when measured globally, but when measured regionally that is not necessarily true.

In other terms, yes if a city is well insured, the insurance companies are well reinsured, the disruption to established economic activity is short term, and you knew people would rebuild, then destroying the city would be a fantastic way to generate an increase of economic activity for that city. Some one will have to pay for it somewhere, but it does not have to be the city.
slo1
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11/1/2012 3:04:25 PM
Posted: 4 years ago
http://www.newser.com...


Eqecat said Sandy may have caused between $30 billion and $50 billion in total economic losses, including property damage, lost business and extra living expenses. The cost to insurance companies could run as low as $10 billion and as high as $20 billion.

The firm pointed to two reasons that Sandy will leave a bigger bill than it first thought. Power outages are more widespread than in a typical Category 1 storm, Eqecat said. Sandy knocked out electricity for more homes and businesses than any other storm in history, according to the Department of Energy.

The lack of subway service in New York City and blocked roadways will also push the total cost higher, Eqecat said.

Before the storm hit, Eqecat had estimated that total economic losses from Sandy could range as high as $20 billion and that losses to insurance companies could reach $10 billion. Payouts for insurance claims are typically a fraction of the overall cost to the economy.


Looks like somewhere 30% to 40% of damage will be covered.
Wallstreetatheist
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11/1/2012 11:09:24 PM
Posted: 4 years ago
This age-old fallacy kind of gets old. You'll see Krugman cheering for WWII, 9/11, Katrina, the Iraq War, and now Hurricane Sandy. I don't know whether to laugh or cringe. Anyway, a new article today on the Hurri-Keynesians: http://mises.org...
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darkkermit
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11/2/2012 12:04:26 AM
Posted: 4 years ago
At 11/1/2012 11:09:24 PM, Wallstreetatheist wrote:
This age-old fallacy kind of gets old. You'll see Krugman cheering for WWII, 9/11, Katrina, the Iraq War, and now Hurricane Sandy. I don't know whether to laugh or cringe. Anyway, a new article today on the Hurri-Keynesians: http://mises.org...

stating that something can cause economic growth =/= cheering for it.
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darkkermit
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11/2/2012 12:08:31 AM
Posted: 4 years ago
At 11/2/2012 12:04:26 AM, darkkermit wrote:
At 11/1/2012 11:09:24 PM, Wallstreetatheist wrote:
This age-old fallacy kind of gets old. You'll see Krugman cheering for WWII, 9/11, Katrina, the Iraq War, and now Hurricane Sandy. I don't know whether to laugh or cringe. Anyway, a new article today on the Hurri-Keynesians: http://mises.org...

stating that something can cause economic growth =/= cheering for it.

should've said economic output, not growth.
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FREEDO
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11/4/2012 12:55:46 AM
Posted: 4 years ago
I have doubts about the broken window fallacy. But, to me, the issue that people are taking with it doesn't even matter. This is because we have two fundamentally different definitions of what the economy is. To most, the economy is just how much we are producing. But we forget what the purpose of this economy is to begin with. The purpose is to produce a wide array of things we attach value to. Regardless if the hurricane decreases or increases production, it has erased a large amount of value that needs to be replaced.
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darkkermit
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11/4/2012 1:14:00 AM
Posted: 4 years ago
At 11/4/2012 12:55:46 AM, FREEDO wrote:
I have doubts about the broken window fallacy. But, to me, the issue that people are taking with it doesn't even matter. This is because we have two fundamentally different definitions of what the economy is. To most, the economy is just how much we are producing. But we forget what the purpose of this economy is to begin with. The purpose is to produce a wide array of things we attach value to. Regardless if the hurricane decreases or increases production, it has erased a large amount of value that needs to be replaced.

Its really more about what your own values our. Whether one cares more about, unemployment, wealth, gdp, sustainability, etc.

Although its interesting how so much of wealth is imaginary. Mark Zuckerberg was a billionaire before Facebook turned a profit and was losing money. In fact, Facebook still hasn't made billions of dollars yet. Its the predicted future earnings of Facebook that makes Mark Zuckerberg a billionaire.

If you look at what happened in the great recession, a bunch of wealth just vanished because the prices of stock and houses went down.
http://www.mybudget360.com...
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FREEDO
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11/4/2012 1:21:58 AM
Posted: 4 years ago
At 11/4/2012 1:14:00 AM, darkkermit wrote:
At 11/4/2012 12:55:46 AM, FREEDO wrote:
I have doubts about the broken window fallacy. But, to me, the issue that people are taking with it doesn't even matter. This is because we have two fundamentally different definitions of what the economy is. To most, the economy is just how much we are producing. But we forget what the purpose of this economy is to begin with. The purpose is to produce a wide array of things we attach value to. Regardless if the hurricane decreases or increases production, it has erased a large amount of value that needs to be replaced.

Its really more about what your own values our. Whether one cares more about, unemployment, wealth, gdp, sustainability, etc.

Although its interesting how so much of wealth is imaginary. Mark Zuckerberg was a billionaire before Facebook turned a profit and was losing money. In fact, Facebook still hasn't made billions of dollars yet. Its the predicted future earnings of Facebook that makes Mark Zuckerberg a billionaire.

If you look at what happened in the great recession, a bunch of wealth just vanished because the prices of stock and houses went down.
http://www.mybudget360.com...

And that would be the difference between my idea of an economy and the usual one. In the real world, wealth doesn't just vanish in a recession. Nothing has actually changed. The very possibility of recessions without natural disasters shows to me that human collective action will never have rational results, which is to say that free markets don't work.
GRAND POOBAH OF DDO

fnord
darkkermit
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11/4/2012 1:29:13 AM
Posted: 4 years ago
At 11/4/2012 1:21:58 AM, FREEDO wrote:
At 11/4/2012 1:14:00 AM, darkkermit wrote:
At 11/4/2012 12:55:46 AM, FREEDO wrote:
I have doubts about the broken window fallacy. But, to me, the issue that people are taking with it doesn't even matter. This is because we have two fundamentally different definitions of what the economy is. To most, the economy is just how much we are producing. But we forget what the purpose of this economy is to begin with. The purpose is to produce a wide array of things we attach value to. Regardless if the hurricane decreases or increases production, it has erased a large amount of value that needs to be replaced.

Its really more about what your own values our. Whether one cares more about, unemployment, wealth, gdp, sustainability, etc.

Although its interesting how so much of wealth is imaginary. Mark Zuckerberg was a billionaire before Facebook turned a profit and was losing money. In fact, Facebook still hasn't made billions of dollars yet. Its the predicted future earnings of Facebook that makes Mark Zuckerberg a billionaire.

If you look at what happened in the great recession, a bunch of wealth just vanished because the prices of stock and houses went down.
http://www.mybudget360.com...

And that would be the difference between my idea of an economy and the usual one. In the real world, wealth doesn't just vanish in a recession. Nothing has actually changed.

Actually, yes things actually have changed. The value of an asset is based on how much income it can bring in the future. If there is a lack of demand, as in the case of a recession, or an unforseenable event causes the value of an asset to chance, for example how Blockbuster lost value with the invention of netflix.

The very possibility of recessions without natural disasters shows to me that human collective action will never have rational results, which is to say that free markets don't work.

There are imperfections in the free market. I'll be the first to admit this even If I sometimes come off as a free marketer. But to say that's proof of the free market is to commit the Utopian fallacy.
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